Litigation 101: Surviving the First Time Your Business Gets Sued

Sooner or later, it will happen.  For some businesses, through a combination of skill and luck, it may be years before it does. But even if you work hard to comply with all of your legal obligations –and most businesses do– you will get sued.  It may be an employee you fired, a vendor you quit using, or somebody who is injured on your property or by one of your employees.  The possibilities are endless, but one thing is certain: You will not like it.

The system is not efficient. In many respects, and in the global scheme of things, we have a great justice system. But by the operational standards of successful business people, litigation often is not an efficient way of solving problems.  It is easy for the costs of what is known as the discovery process –an exchange of information about the parties’ respective positions that takes place before any case goes to trial– to dwarf what is actually at stake.

Bill Nolan

Further, the system does little to dissuade parties from filing dubious cases. If you make a bad investment decision, you lose your investment. If you sell a product or service that does not meet a market need, nobody will buy it. If you file a bogus lawsuit, you … Well, you have wasted some of your time, but nothing very bad is likely to happen to you. And because you know of the costs to the parties you sue, you know you can often leverage (extort?) a settlement out of them just to avoid the costs of paying lawyers.

Yes, there are penalties for frivolous lawsuits, but they are reserved for extreme situations. Clients often ask, can I get my fees for defending this? And my answer almost invariably is, “You can, but don’t count on it.”

Right or wrong, getting sued is part of doing business. When you get sued, it’s very likely you will be mad. Very mad.  If it is your first time getting sued, you are a small enough company that the lawsuit will be a major inconvenience. It’s not fair for you to have to tolerate this.

That’s fine, but get it out of your system. Businesses get sued. If somebody did not tell you that when you went into business, they should have. Get your blind rage out of the way as quickly as possible so you can go about making good decisions– even if the strategic decision is for your adversary to think you are being driven by blind rage.

It involves people you do not control. Lawsuits are decided by judges and juries, both human decisionmakers. Lawyers like to think we are pretty good at managing and influencing those people, and often we are. But sometimes they surprise us. The fact is, you can lose anything that involves human decisionmakers.

The sooner you can think realistically about the end, the better off you will be. That insight is one aspect of a bigger point: It is important that you think from the beginning about the various outcomes of the case, the likelihood of each, how you get there from here, and the approximate cost. Having the big picture in front of you at the outset, with your blind rage out of your system, will enable you to make good strategic litigation decisions– the decisions that are best for your business.

Make sure you have a lawyer who is helping you think about that the end. Be wary of a lawyer who says you cannot win, or that you cannot lose. Neither statement is likely correct. Between the human decisionmakers (see above) and the many shades of gray in the law, there almost always is uncertainty. Your lawyer’s job is to help you map out the scenarios and probabilities with as much precision as possible, but there are multiple scenarios. If you do not like risk and uncertainty, then you may decide to pay a premium to resolve the case now rather than living with the uncertainty. Litigation involves risk.

 It is going to cost you more money than you think it should. As noted above, litigation is expensive. With very few exceptions, certain aspects of the process take a lot of time. The other side has broad latitude in who they will question in depositions and in what documents they will require to be produced. Almost without exception, you need to have your lawyer closely involved in the process.  Right or wrong, and notwithstanding the occasional layperson you read about representing himself in a trial, the system is too complicated for all but a very few non-lawyers to effectively navigate it.

And the money is not the worst part. I have heard this countless times from clients: “You know, we don’t like paying your fees, but the money is not the worst part of this.”  No, the worst part often is lost time and the distraction it creates for you and your organization.  People who are sitting in depositions or finding documents for lawyers are not doing their jobs. Even when they are not engaged in actual litigation activities, they may be distracted from the mission of the company because of the lawsuit.

In short, litigation is most effectively managed if it is viewed as another business challenge, often an unfortunate one to be sure, but one that you should view as another competitive challenge. Just as you dealt with a design challenge, a sudden increase in supply costs, or a problem customer, if you approach litigation like the business puzzle it is, you will be able to make the decisions that best position your company for continued success.